Australia has one of the strongest and most stable banking and financial services sectors in the world. Which performs a vital role in underpinning our economic stability and growth.

Our financial institutions operate with an implicit social license. Australians deserve and expect the highest levels of service and accountability. And, for the vast majority, that’s exactly what they receive.

Since the financial crisis, however, there have been examples of misconduct by financial institutions - some of them extremely serious and that’s demanded a response from the institutions themselves and from government.

Now, we have taken strong and immediate action to ensure the highest standards of conduct by banks and other financial institutions and the greatest level of protection for their customers, for consumers and these include the Banking Executive Accountability Regime to ensure greater oversight of senior bank executives by the Australian Prudential Regulation Authority, APRA.

That is a measure that Bill Shorten is trying to hold up.

Establishing the Australian Financial Complaints Authority — a new one-stop shop for external dispute resolution and greater transparency of internal dispute resolution by financial and superannuation firms.

Again, at this stage, Bill Shorten and Labor are blocking that reform in the Senate as well.

We’ve given regulators great powers and greater resources in relation to oversight of dispute resolution and promoting competition and consumer choice.

And of course, as you know, we’ve ensured bank CEOs attend regularly before the House of Representatives Economics Committee, which is now institutionalised and of course is ensuring greater accountability.

There are many other measures and the Treasurer will touch on some of them.

And I just want to thank him and Kelly O’Dwyer, the Minister for Revenue and Financial Services, for the great work they’ve done in ensuring that we constantly protect consumers, customers of banks and financial services entities at the same time doing everything in the national interest and maintained in the past, the stability of the financial sector.

Now, these measures will resolve many of the issues that have been raised in recent years and ensure that in future such misconduct is not repeated and if it is repeated, appropriately punished.

Of course, this would not have been possible to do had there been a wide-ranging banking inquiry underway.

There would’ve been legitimate calls to delay any new measures until the findings of the inquiry were handed down and that is one of the reasons why we have not established a banking inquiry to date.

Now, uncertainty however over the potential for such an inquiry is starting to undermine confidence in our financial system and as a result, the national economy and that is precisely what we have always been determined to avoid.

We need to put Australians jobs, Australians prosperity, Australian businesses first and that requires a strong financial sector and it requires confidence in that sector.

Now, we know that a strong economy creates more jobs and provides more opportunities for every Australian - that’s self-evident. We’ve seen nearly 1,000 jobs a day created in the last 12 months.

The reckless actions of Bill Shorten, the Greens and others are harming economic confidence and putting that at risk.

Now, the banks, of course, do not believe an inquiry is necessary. But they have raised, and you may have seen their letter to us, serious concerns that the ongoing uncertainty is undermining the financial system.

Those institutions are the bedrock of the economy. There’d be very few Australians who are not a customer or shareholder of the banks. Many of us are both, with almost every worker holding bank shares through their superannuation fund. The banks employ more than 200,000 people alone.

Now, the speculation about an inquiry cannot go on. It’s moving into dangerous territory where some of the proposals being put forward have the potential seriously to damage some of our most important institutions.

We have got to stop the banks and our financial services sector being used as political football.

It may be politically advantageous for some people to do so, but it runs the risk of putting vital economic interests at stake and runs the risk of putting them under threat.

Now, the chief executives and chairman of the big four banks have written to us, asking the government to step in, end the uncertainty and ensure an orderly process that addresses the concerns.

Cabinet has met this morning and is determined that the only way we can give all Australians a greater degree of assurance about the financial system is through a Royal Commission into Misconduct into the Financial Services Industry. Only the government can ensure that a Royal Commission is created with responsible, comprehensive terms of reference, established and respected and capable Commissioners and enough resources to do the job.

Now, this will not be an open-ended Commission. It’s not going to put capitalism on trial, as some people in the Parliament would prefer. And we will be giving it a reporting date of 12 months. This should not be a Commission that runs forever, costing many hundreds of millions of dollars, as would’ve been the case under some of the proposals.

The Terms of Reference will ensure a responsible but comprehensive investigation into how financial institutions have dealt with cases of misconduct in the past, and whether those examples expose issues in terms of the cultural and governance issues in terms of the regulation and supervision of the industry.

It will cover the nation’s banks - big and small - wealth managers, superannuation providers, insurance companies. It will be a comprehensive inquiry.

I will be appointing a distinguished former or serving judicial officer to lead the Commission. We’ll be asking the Commissioner to deliver a final report by 1 February 2019.

To be clear, I want to make this very clear, the Royal Commission will not be able to recommend compensation for individual cases. But it will be able to make recommendations that the government consider in the interests of making our financial system the most competitive, transparent and accountable in the world.

We have much to be proud of, about our banking system and the experience the global financial crisis should remind us of that. We have much to be proud of it but also much to take care of. We need to maintain the stability of our banking and financial system.

All Australians - consumers, small businesses, farmers, shareholders - must have confidence and trust in the financial system.

Now this Royal Commission’s establishment will end the uncertainty and speculation. It will conduct an inquiry in a thorough and conventional fashion and in so doing safeguard the integrity of our banks and our other financial institutions thereby ensuring Australia’s confidence and trust in this critical industry is well founded.

I just want to, before asking the Treasurer to speak, I want to thank you again, Scott, for your great work in this area. And of course, Kelly O’Dwyer, whom I have mentioned. Mathias Cormann, and for all of our Cabinet colleagues who have been considering this very carefully.

Also, I want to acknowledge so many of our colleagues in the party room - Warren Entsch, Ann Sudmalis and others who have raised these issues with us, concerns about constituents that have had issues, where there have been issues where they feel they’ve been treated poorly by banks and financial service providers.

The feedback from all of our colleagues has been vitally important in informing us to achieve the reforms that we’ve done to date and of course those concerns will now be able to be ventilated comprehensively in the inquiry that we are announcing today.

Scott.

THE HON. SCOTT MORRISON MP – TREASURER:

Well, thank you Prime Minister and thank you for those words and also thank you for the way we've been able to work through what has been a very difficult issue, but one in announcing this measure today, we add to the strong work that's already been undertaken. Can I add my comments of thanks to our colleagues and I’ll touch on that in a second.

It is important, and forgive me if I repeat some of the things the Prime Minister said, but it is important that we send a very clear message about what this is about, what it's not about, and that is particularly important for financial markets so I will read a prepared statement.

Australia's banks are unquestionably strong. Nothing that we’ve announced today changes this or gives any reason to question this, on the part of the government.

This is an important message for markets and the international financial community. This inquiry does not question the robust nature of our prudential system.

As the Prime Minister has said, our financial system saw us through the global financial crisis and key amongst that was the strength of the banking system, but I will add the strength of the prudential regulatory oversight system that was put in place by the Howard-Costello government, and has been strengthened by the Turnbull Government.

The systemic strength of our banking system and the reputation and standing of our banking system domestically and internationally is central to the performance of our economy, and the jobs, wages and incomes of Australians and Australian businesses.

Our major banks are more than a third of the market cap of the ASX, almost nine per cent of our economy, employ over 400,000 people and they have some 17.6 million customers.

The Turnbull Government will always and has always acted in that national economic interest in addressing these issues. This has certainly guided our decision-making on matters to date, and we have been taking action now to ensure that our banks remain unquestionably strong, unquestionably competitive and unquestionably fair.

Those actions have been substantial, working together, particularly with the Minister for Revenue and Financial Services, Kelly O'Dwyer, and the rest of my colleagues, the financial assistance inquiry that we initiated and responded to.

The Australian Financial Complaints Authority that now sits in the Senate, the resources and powers of ASIC which have been strengthened, the Banking Executive Accountability Regime, which now sits in the House of Representatives.

The work done by the House of Representatives Standing Committee on Economics, and with the Prime Minister, particularly I want to commend David Coleman, the Member for Banks for the outstanding work and leadership he has shown on that committee and the other members of that committee.

And increasing competition in our banking sector, which is critical to getting better outcomes for customers, most recently the work we've done on comprehensive credit reporting and in addition to that, strengthening the role of mutuals, cooperatives and customer-owned banks in the banking system.

Together with Kelly O’Dwyer we have been working with many of our colleagues also to address issues within the banking system and particular cases. In particular, Warren Entsch, Ann Sudmalis, I’ll also add Julian Leeser, Nola Marino and I want to thank them for the way they’ve patiently worked with the government to try and get outcomes on those issues for those they represent.

All these reforms and actions would not have occurred had the government agreed to undertake this action earlier, such actions would’ve been unnecessarily delayed. Nor would such action prior to this time have been in the national economic interest.

But the nature of political events means the national economic interest is now served by taking what I describe as a regrettable but necessary action.

Politics is doing damage to our banking and financial system, and we are taking control as a government to protect the strength of our banking system through a properly constituted inquiry on these terms of reference. Rather than the alternatives as presented in other’s commissions of inquiry proposals that would be subject to the vagaries of politics, which would do harm and already has to date.

In coming to this view I have consulted not only with Treasury, but I also consulted with the Governor of the Reserve Bank and the Chair of APRA, who agree this is a regrettable but necessary course of action now to take control, given the uncertainty, disruption, and damage being done by political events. Also confirmed by the banks in their communication to me which has already been communicated to the markets.

Importantly, the RBA, and APRA, also agree with the government that this action we announce today must not delay and cannot delay the many other responsible actions that are being undertaken.

Now that includes the Laker Review that is currently being under taken in relation to CBA, things such as the legislative proposals that are before the Parliament, the BEAR and AFCA in particular. We must continue to get on with it, and I call on Parliament to get on with it and support these measures.

When storm financial and other crisis hit, our banking and financial system under the Labor Government - Bill Shorten was responsible amongst others for handling these issues and they did nothing. They even refused to undertake our proposed financial systems inquiry we put forward in opposition.

On this issue of banks, Bill Shorten is a fraud and a fake, who puts his own political interest ahead of the national economic interest. I can’t put it more bluntly than that.

By contrast, the Turnbull government, led by this Prime Minister, is focused on the health and strength of our economy, and the incomes of jobs of Australians and the services they rely on, health and education, that depend on the strong economy.

JOURNALIST:

Just clarifying compensation, could this process lead to compensation, particularly for victims of bank behaviour, small and medium enterprises that always paid off their debts, their bills, the interest, but were forced into foreclosure in particular?

PRIME MINISTER:

Well, the Commission will be able to make recommendations and it may make recommendations for a scheme that would enable compensation and the Treasurer and I and Kelly O'Dwyer have been working on a number of opportunities, you know, possibilities, possible approaches there.

They will obviously be the subject of the inquiry - but one of the subjects of the inquiry. But a Royal Commission cannot award compensation.

A Royal Commission is an inquiry, it has the power to compel the production of documents, compel the attendance of witnesses and so forth, and it will, it makes a report and makes recommendations. So certainly subject to recommendations.

TREASURER:

Can I just add to that, I mean one of the reasons is the Prime Minister and I have made clear over a long period of time, is that one of the cruelties of the suggestions about a Royal Commission previously is that a Royal Commission somehow will solve those problems, and can deliver those outcomes. It's one of the reasons which we’ve always focused on the things we can do constructively now, rather than provide that previous false hope.

JOURNALIST:

Prime Minister do you stand here regretting having to do this, are you regretful?

PRIME MINISTER:

I agree with Scott, this is essentially a regrettable but necessary action.

I mean politics, the banks in particular and financial services sector has become a political football, that is not in the national interest and the approach we've taken has been the correct one - and of course it's delivering real results now.

Scott’s absolutely right, if you had started a Royal Commission of this kind two years ago, everyone in the industry would’ve said, hold your horses, wait until the Commission reports.

JOURNALIST:

(Interjections)

PRIME MINISTER:

Just let me finish. But it is clear that the speculation and the uncertainty and the politics around this issue require the government to take control of the inquiry issue, have a properly constituted inquiry, which is a Royal Commission, and get this matter addressed and that's what we're doing.

JOURNALIST:

How much of the Nationals have contributed to that?

PRIME MINISTER:

I don't want to get into a debate about that but I think we’re all aware of the circumstances in the Parliament.

JOURNALIST:

Prime Minister, what communication have you had with the big banks prior to this letter being sent?

PRIME MINISTER:

Well Scott can answer that.

TREASURER:

In terms of our decision to undertake a Royal Commission, that has not been communicated to the banks until this very minute. As people are aware, I've been holding discussions with banks as part of the job of being Treasurer over many years, but particularly most recently.

But this issue has resulted following the communication that you’ve now all seen, and that is a position the banks have come to their own volition and it adds, as I said to the advice and consultations I’ve had with the Governor of the Reserve Bank and the APRA Chair.

JOURNALIST:

Did you ask for or encourage this from the banks?

TREASURER:

No, this was offered by them voluntarily.

JOURNALIST:

A Royal Commission can be quite limited in time, particularly in Terms of Reference. In light of that, doesn’t that undermine your argument that it would've been bad to do early? If you had done it two years ago, it would be over a year ago.

PRIME MINISTER:

Well, Michelle, I understand the point you're making but the reality is, we got going, we've been going on a lot of these issues for some time now. There is no question, I think no-one would argue, that when a government is trying to promote reform in the financial services sector, if you have a Royal Commission going on into it, a lot of people will say - not unreasonably by the way - they will say we'll wait to see what comes out in the Royal Commission.

So I think while we regret the necessity of the decision that we've taken, it is in the national economic interest. And it has of course, by making the decision now, it means that so much of the major reforms we’ve undertaken have either been - some of them have been legislated, some of them actioned, others are in the Parliament, but the important thing is to take that action now.

Now we will be asking, the Royal Commission will be set up on the basis that it reports within a year. But as you know, and again, being realistic about this, Royal Commissions often take longer than originally planned. That's why we’ll be looking to get an interim report in the course of next year, so you know, we want to move - we want this to move along as quickly as it can.

I think everyone would see it as a vested interest from everybody in getting this matter - you know, it's a national interest in getting it resolved, but Royal Commissions often do take longer than planned.

JOURNALIST:

The federal government has long called this a lawyers' picnic. Have you got an estimation of how much this would cost? And if the Royal Commission actually recommends compensation, would that you paid by taxpayers or by the banks?

PRIME MINISTER:

Scott can handle that.

TREASURER:

Well let me deal with the question of cost first, we will be allocating $75 million for the purposes of this Royal Commission - that's the estimate of our cost we'll be making that available for the Commission.

Again, the issue that you raise, I think is one of the reasons why you don't seek to create false expectations. And this, I think, has been the cruelty of Bill Shorten's position.

He wanted to pursue a Royal Commission because he didn't know what to do. We knew what to do and we got about doing it. His call for a Royal Commission was an excuse for not taking action.

Our position on this matter has been, because we wanted to take action, and we wanted to get about it.

Now if it's Bill Shorten's suggestion that he wanted to do this because he wanted taxpayers to fund some large compensation scheme, well, he should come out and say that. But the government has taken an action here where I think the Terms of Reference are very clear and those sorts of questions I think carry with it a lot of moral hazard.

JOURNALIST:

Are you concerned taxpayers will be asked to pay for compensation?

TREASURER:

Well I think those questions actually go to the issues of moral hazard.

JOURNALIST:

On marriage-

PRIME MINISTER:

Hang on, just one second - can we stay on the financial sector for a moment.

JOURNALIST:

Prime Minister, what has happened in the last week on this issue, that has made - what is this politically uncertainty that's become so terrible you got to act now. Since a week ago, you were still dismissing a call for a Royal Commission?

PRIME MINISTER:

Well you know government's policy remains the same until it's changed, Laura that’s the first point. This was a decision of the cabinet, which has just concluded. So that’s the first point I want to stress to you.

Obviously, there's been a lot of changes in the political environment here. We've got two by-elections underway, our numbers are down in the House of Representatives. You all understand the political circumstances and our job is to manage these issues and lead on these issues in a way that protects the national economic interest of Australia and all Australians.

That’s our job and that's the judgement we've taken and you can see, you can see that the banks have come, they’ve come to a conclusion that they believe that it is best to get on and hold an inquiry.

I mean I notice the Sydney Morning Herald editorialised in that way only a day or so ago.

I think people are recognising that the nature of the political environment has created a sense of inevitability about an inquiry. There's been a lot of uncertainty, a lot of speculation and that is why it's best - while we don't relish this decision - nonetheless, we have to act in the national interest, protecting Australians economic future and that's why we have taken the decision we have.

TREASURER:

Can I just add to that. Together with the Prime Minister – I’ll answer the question - in relation to receiving the advice that we have received, none less so than the Governor of the Reserve Bank and the chair of APRA in relation to the damage that has been caused, obviously supported by the reflections made by the four banks that represent, as I said, more than a third of the Australian stock exchange, those issues can’t be ignored, as fairly tectonic moments in what the damage that politics has done on this issue and the need for the Prime Minister and the Cabinet to take action, to take control and ensure that there is an adult way of dealing with this issue.

JOURNALIST:

But the issue, the issue here, sorry-

TREASUER:

That’s alright.

JOURNALIST:

The issue here is that you want to control the terms of reference because basically you know that if you don't, the Parliament is going to set something -

TREASURER:

Well politics will continue to damage the national economic interest if we allow politics to continue to drive this process. By taking control through a Royal Commission, that is something that was in the ambit of the government, then I think we can provide that certainty that Australian families, that Australian businesses, that international markets and others are seeking.

It's regrettable but necessary. It's regrettable that the politics, principally, with the politicking of the Opposition has led to this, but that said, we will stand up for the national economic interest of Australians jobs.

JOURNALIST:

PM isn’t the uncertainty because you are unable to control your numbers in the House and your numbers in the Senate? Until two weeks ago this wasn't an issue. You kept maintaining there won’t be a royal commission, you've lost control of key members of the National Party.

PRIME MINISTER:

I want to just remind you that there are two by-elections going on and we are currently two members down in the House of Representatives. That is a relevant fact. We look forward to them being restored to their positions but obviously currently, they're not there.

Look, we have to play, Prime Ministers and Treasurers, Cabinets, governments have to deal with the circumstances with which they're presented. I've said to you many times here before, that we will lead and govern with the Parliament the Australian people elected. That is exactly what we've done and we've had considerable success in doing so.

This is an inquiry that is necessary, given the circumstances of the time.

JOURNALIST:

Will you consult with the Opposition on the terms of reference, given that that is convention with Royal Commissions?

PRIME MINISTER:

That's not the convention with Royal Commissions.

TREASURER:

If you recall, he doesn’t even have a terms of reference. He’s never had a terms of reference.

JOURNALIST:

Prime Minister, on marriage-

PRIME MINISTER:

Hang on, I know you are very keen on that, but Chris Uhlmann?

JOURNALIST:

On another matter, right now I think Senator Dastyari will be rising to his feet in the Senate-

PRIME MINISTER:

Resigning, I hope.

TREASURER:

Yeah.

JOURNALIST:

I think he’s resigning from his position.

PRIME MINISTER:

Is he resigning from the Senate?

JOURNALIST:

No, that's the question.

PRIME MINISTER:

Look, Dastyari should resign from the Senate.

TREASURER:

Hear, hear.

PRIME MINISTER:

Look, let's be very clear about this. We have seen senators resign from the Senate, senators who had no allegiance to any country other than Australia but by reason of a condition in a foreign law of which they weren't aware it turned out that they had dual citizenship.

This is a senator who has made it abundantly clear that his first allegiance is not to Australia.

He has been taking money to pay his personal debts - he's acknowledged that - from a foreign national who is very, very close indeed to a foreign government.

Now, now we learn - and he has not denied it - that he has been providing counter-surveillance advice to that foreign national in order presumably, so that what he assumed were the operations of Australia's security agencies, could be frustrated.

Sam Dastyari should get out of the Senate. Full stop. That's his duty.

If his statement is not a statement of resignation, then he is letting everybody down.

And Bill Shorten has to take responsibility for this. All of this mealy-mouthed: "Oh, he's on his last warning," that is nonsense.

This is not a lapse of judgement, this is a failure of loyalty.

TREASURER:

Last chance Sam has run out of chances.

JOURNALIST:

Back on marriage Prime Minister, is your support for amendments purely a gesture or have you given thought to what would happen if amendments got up that Labor and the Greens don't support?

PRIME MINISTER:

Well, it is a free vote on our side of politics.

Just to remind you all of the history of this - we went to the election and we said we'd give every Australian a say and we did and 80 per cent of them had their say and 62 per cent voted ‘yes’.

We said we'd ensure, do all we could to ensure, that same-sex marriage was legalised before the end of the year and of course, it has now passed the Senate.

It is a free vote. Members are entitled from our side, to move and vote on amendments or indeed on the Bill itself, as they see fit.

But, Shorten said that Labor was going to have a free vote too, didn't he? But then he didn't.

Once again, tricky Bill, slipping and sliding.

So Labor members have a free vote on the Bill – apparently - but not a free vote on the amendments.

What sort of slippery logic. Can you imagine anything more slippery than that?

The reality is, the reason that the amendments or as I understand it hardly any of the amendments got up in the Senate, was because Labor would not allow a free vote on them.

We were looking forward to a completely free vote across the board.

So you would find Coalition members taking different positions, and you've seen that. Labor members supporting Coalition members on one amendment or vice versa. That would have been Parliament at its best.

But Shorten's inability to rise to the occasion and allow his members a free vote, is why none of those amendments got up in the Senate.

TREASURER:

Can I add one thing to that? People of faith in this country can have no faith in Bill Shorten when it comes to religious protections.

You know my view on these things and you know that and the Prime Minister's view on these things. We've shared very strong views about religious protections over a very long time.

What the Labor Party have done on this issue is an insult to every person of faith and religion in this country. He should be ashamed of himself but particularly ashamed because, in nine out of the top 10 seats that had voted ‘no’ in this latest plebiscite, they were all Labor seats.

What on earth are those members going to say to their people in their electorates?

I just think it is a disgrace.

JOURNALIST:

Prime Minister do you have national security concerns that the information about Senator Dastyari's actions have gone into the public domain?

PRIME MINISTER:

I am more concerned, I tell you what I am very concerned about is that Sam Dastyari, a Senator, an Australian Senator has not simply taken money to pay off his personal debt from a foreign national who is very involved, very much connected with Chinese Government agencies and interests, as we know, did a U-turn on Labor policy on a vitally important issue of national security relating to the South China Sea.

That was bad enough. That was very bad. He should have gone then.

But now, he goes to a meeting with this individual and he tells him to put his phone inside and he puts his own phone inside, so that there is no risk of them being overheard by Australian security agencies.

Now, that is disloyal conduct of the highest order.

Dastyari should leave the Senate.

If he refuses to resign, Shorten should dump him from the Labor Party and let him languish in contempt on the crossbench.

Dastyari has shown he does not put Australia first and he does not owe his first loyalty to Australia.

Sam Dastyari has shown that he is not on Australia's side and it is time he got out of Australia's Parliament.